Britain and France vowed to respond to financial market problems on Thursday and called on banks to declare the full extent of the damage to their operations caused by the credit crunch.

Prime Minister Gordon Brown called his relationship with President Nicolas Sarkozy an "entente formidable" as the French leader wrapped up a two-day state visit that both men hailed as launching a new era of cooperation.

They agreed to try to enlarge the U.N. Security Council by getting permanent seats for Germany, Brazil, India, Japan and representation for Africa.

In sharp contrast to the mutual suspicion that has so often tainted Anglo-French relations, the body language between the two leaders could not have been warmer.

Compliments flowed in a press conference staged at the futuristic stadium of Premier League soccer club Arsenal in north London. The club is managed by Frenchman Arsene Wenger and has several Francophone players in its squad.

An emotional Sarkozy hailed the "well deserved" reception given to his new wife, model-turned-singer Carla Bruni who he married last month after a whirlwind romance that dented his popularity in opinion polls.

Leaders around the world are trying to calm fears of a global economic downturn stemming from a credit squeeze sparked by a U.S. housing loan crisis. But rich nations have yet to agree a joint action plan.

"We agreed the need for greater transparency in financial markets to ensure banks make full and prompt disclosure of the scale of write-offs," Brown and Sarkozy said in a statement.

Banks have written down more than $125 billion (62 billion pounds) of assets due to the credit squeeze. Some estimates put the scale of bad debts on banks' books as high as $600 billion.

Central banks have pumped cash into the financial system to restore confidence among commercial banks wary of lending money to each other. The two leaders urged further discussion with the United States and other to address the crisis.

EURO "TOO STRONG"

In a speech in London's financial district on Thursday evening, Sarkozy complained that the euro was too strong while he said the value of the U.S., Japanese and Chinese currencies did not reflect the strength of their economies.

He has repeatedly complained that the euro's rise, hitting a record high above $1.59 last week, damages French exporters.

Sarkozy also voiced concern at the high price of oil and other commodities.

Britain and France are permanent U.N. Security Council members, but moves to broaden its scope have been deadlocked. Brown and Sarkozy suggested some countries could be given longer, renewable terms on the council, perhaps leading to permanent seats.

Sarkozy is seeking close ties with Britain to supplement the Franco-German alliance that has traditionally driven the 27-nation European Union. Analysts say that may be because of his difficulties with German Chancellor Angela Merkel.

Britain has often been criticised in Brussels for lingering on the fringes of the European Union and not joining the bloc's common currency - with Brown a regular target for sniping. But he stood firmly with Sarkozy at a joint news conference.

"We also agreed that we need Britain and France at the heart of Europe, a global Europe, that is reforming, open, flexible, outward-looking," Brown said.

The two men agreed action on issues including opening up trade between poor and rich countries, clamping down on illegal immigration, tackling climate change and promoting dialogue between China and Tibet to solve the crisis there.